US Fed stays put as one dissenter changes tack

Rate-setters in the US kept voted to maintain the current settings for the country´s monetary policy following two days of deliberations but slightly upgraded their view of the current situation, something which appears to have reaffirmed many economists in their forecasts that an interest rate hike was likely in December.

"The Committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives," the Federal Open Market Committee said in a statement issued following its meetings.

Recent job gains were described as "solid" and as economists at Barclays Research pointed out, the central bank upgraded its view on inflation in three different parts of the statement.

"In our view, should the Fed fail to raise rates after signaling repeatedly for a rate hike this year, the FOMC would be likely to experience a further loss in credibility. In addition to election-related outcomes that could result in an unwanted tightening of financial conditions," Michael Gapen and Blerina Uruci at Barclays Research said in a research note sent to clients.

Nonetheless, the two economists admitted that the Fed, as ever, continued to leave its options open, "maintaining flexibility to delay action, should events in the next two months not materialize as expected".

To take note of, as opposed to what occurred on 14 September on this occasion only two policy-makers dissented from the decision to stay put - and not three - voting instead to tighten policy immediately by raising the Fed funds rate by 25 basis points.

Boston Fed President Eric Rosengren who voted for a rate hike in September this time choose to go with the majority.

Following Wednesday night´s decision, Fed funds futures were left assigning a 66.8% probability to a 25 basis point rate hike when the Fed next met, on 14 December, down from the more than 70% odds seen earlier in the week.

According to Bloomberg calculations, the probability stood at 78% versus 68% on 1 November.

The yield on the benchmark two-year US Treasury note ended the session down by one basis point to 0.82%.

"It is worth noting that there is no explicit mention of the December meeting in the statement.

"We have, for some time, had this non-consensual view that the Fed will not raise the Fed funds target range this year. Although the probability of a December hike has definitely increased, as economic data have been better than we had expected, we still think it is too early to say a December hike is a done deal, as there are still valid arguments for not hiking this year at all", said economists at Danske Bank.